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If you are interested in generating a weekly income with an options strategy that uses the SPDR Gold Trust (NYSEARCA:GLD) as the centerpiece, you should really enjoy this article. The SPDR Gold Trust is the one ETF that I will use on a consistent basis with this strategy. At the end of the article, I will mention some other stocks and ETFs that I trade occasionally.

I have been using this strategy with the SPDR Gold Trust for a while and it is a consistent performer. In fact, I have reeled off eight straight weeks of winning trades and I have plan to continue trading it.

For those who have not read any of my previous articles, I am a huge proponent of using the 'reverse iron condor' spread in the right situations. When used correctly, this trade requires a modest move for profit. The SPDR Gold Trust, with its volatility and price swings, is one of the few ETFs that fits this strategy to perfection, without much to worry about or constant monitoring needed.

With weekly options, there is a limited number of stocks or ETFs available to use this strategy with.

One reason the SPDR Gold Trust ETF is a favorite of mine is because of the liquidity. You will not overpay for this trade and closing the position is never a problem.

Often, this trade profits early. You then have the choice to close the position or to hold the trade until expiration. Unlike the Power Shares QQQ Trust (NASDAQ:QQQ), Series 1, the SPDR Gold Trust has large price moves on a weekly basis. There are a few very important details to know when is the best time to place this trade, how to exit properly, and how much to invest. I will also provide a week-by-week chart over the last few months to show price movement.

This strategy is also great because it requires little monitoring until mid-week. Generally, you will not close your positions out until the next Wednesday at the earliest, but there are exceptions.

The SPDR Gold Trust seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.

Currently, the SPDR Gold Trust is trading at $156.71/share. The 52-week range is $127.80 - $185.85.

52wk high: 185.85
52wk low: 127.80
EPS: N/A
PE: N/A
Div Rate: N/A
Yield: N/A
Market Cap: 64.99 B
Volume: 11.52 M

Before I go any further into this trade, it is necessary to understand the 'reverse iron condor' spread. This trade involves four "legs" and it is the opposite of the 'iron condor' spread, which seeks low price volatility.

The 'reverse iron condor' spread is a neutral options strategy that is placed with a net debit instead of a net credit to the buyer and can be placed with a lower level trading account. Most brokers will let you place this trade if you are approved with a Level 2 or Level 3. Please check with your broker, and if not approved, you can also request to be upgraded. This trade is a limited risk, limited profit strategy.

Here is how the 'reverse iron condor' trade is placed accurately using only one contract each for explanation purposes:

Reverse Iron Condor Construction

  • Buy 1 OTM Put
  • Sell 1 OTM Put (Lower Strike)
  • Buy 1 OTM Call
  • Sell 1 OTM Call (Higher Strike)

This is how I will place my trade:

  • Buy 10 GLD January Week 2 $154.00 strike puts
  • Sell 10 GLD January Week 2 $153.00 strike puts
  • Buy 10 GLD January Week 2 $157.00 strike puts
  • Sell 10 GLD January Week 2 $158.00 strike puts

Requirements

Cost/Proceeds $650.00
Option Requirement $0.00
Total Requirements $650.00
Estimated Commission $50.00

Here is the profit/loss chart:

Current Price: $155.61

Price Profit / Loss
114.75 $350.00
130.63 $350.00
147.35 $350.00
153.00 $350.00
153.35 $0.00
154.00 ($650.00)
157.00 ($650.00)
157.65 $0.00
158.00 $350.00
164.07 $350.00
197.50 $350.00

The two break-even points are $153.35 and $157.65. This is a high probability trade that requires little movement to be a success. The ROI is appealing, as well. You can adjust the strike prices to increase your profit. Always remember to use the trade calculator ahead of placing this trade.

Here is a complete rundown of how the last six (6) weeks of the SPDR Gold Trust traded and its price movement on a weekly basis. This is under the assumption that the trade was placed on the preceding Thursday for the following weeks expiration:

Dec. 22- Dec. 30, 2011

Date Open High Low Close Volume
Dec 30, 2011 151.99 151.99 151.99 151.99 10,852,700
Dec 29, 2011 149.10 150.72 148.28 150.34 4,642,737
Dec 28, 2011 154.02 154.25 150.67 151.05 3,725,629
Dec 27, 2011 155.06 155.52 154.54 154.91 1,194,778
Dec 23, 2011 156.31 156.31 156.31 156.31 3,565,100
Dec 22, 2011 156.33 156.80 155.33 156.04 2,053,735

Dec. 15 - Dec 23, 2011

Date Open High Low Close Volume
Dec 23, 2011 156.31 156.31 156.31 156.31 3,565,100
Dec 22, 2011 156.33 156.80 155.33 156.04 2,053,735
Dec 21, 2011 157.00 157.53 156.15 157.16 3,679,708
Dec 20, 2011 156.80 157.43 156.58 156.98 2,237,386
Dec 19, 2011 155.50 155.85 154.39 154.85 2,991,579
Dec 16, 2011 154.32 155.37 153.91 155.23 3,458,121
Dec 15, 2011 154.75 154.77 151.72 152.33 4,169,190

Dec. 8 - Dec. 16, 2011

Date Open High Low Close Volume
Dec 16, 2011 154.32 155.37 153.91 155.23 3,458,121
Dec 15, 2011 154.75 154.77 151.72 152.33 4,169,190
Dec 14, 2011 156.83 157.34 152.05 152.89 10,249,669
Dec 13, 2011 161.87 163.19 157.76 158.45 6,268,612
Dec 12, 2011 162.41 162.41 161.15 161.97 4,158,028
Dec 9, 2011 166.42 167.32 166.12 166.40 2,443,676
Dec 8, 2011 166.96 167.63 165.73 165.95 3,084,155

Dec. 1 - Dec. 9, 2011

Date Open High Low Close Volume
Dec 9, 2011 166.42 167.32 166.12 166.40 2,443,676
Dec 8, 2011 166.96 167.63 165.73 165.95 3,084,155
Dec 7, 2011 168.85 169.52 167.76 169.34 2,451,044
Dec 6, 2011 166.32 168.57 165.53 168.18 2,120,680
Dec 5, 2011 169.04 169.95 167.07 167.32 3,106,771
Dec 2, 2011 170.60 170.80 169.36 169.92 1,869,905
Dec 1, 2011 169.86 170.56 168.59 169.64 2,674,855

Nov. 25 - Dec. 2, 2011 (Thanksgiving on Thursday)

Date Open High Low Close Volume
Dec 2, 2011 170.60 170.80 169.36 169.92 1,869,905
Dec 1, 2011 169.86 170.56 168.59 169.64 2,674,855
Nov 30, 2011 169.70 170.30 169.09 170.13 3,103,453
Nov 29, 2011 166.40 167.32 166.10 166.88 2,095,431
Nov 28, 2011 166.91 167.11 165.98 166.63 2,675,322
Nov 25, 2011 163.29 165.18 163.29 163.40 1,603,199

Nov. 17 - Nov. 25, 2011

Date Open High Low Close Volume
Nov 25, 2011 163.29 165.18 163.29 163.40 1,603,199
Nov 23, 2011 164.83 164.83 164.83 164.83 11,483,300
Nov 22, 2011 164.76 165.92 164.62 165.31 2,507,023
Nov 21, 2011 166.58 166.71 162.08 163.50 4,790,520
Nov 18, 2011 167.23 168.64 166.60 167.62 3,577,783
Nov 17, 2011 170.08 170.30 166.41 167.07 5,296,863

As you can see, there is not one time where this trade will not have made a profit. This is why I choose to place the order on Thursday instead of later. As expiration nears, and if the trade is profitable, the lack of time is now an asset working in your favor. I have made every weekly trade shown.

The beauty of this strategy is that not too much of a price move (up or down) is needed to profit. This is especially true for the SPDR Gold Trust. Here are a few tips for success when placing this trade and how to monitor the trade:

  • Since the weekly options always open on Thursday morning for the next weeks expiration (on Friday's), I will always place my order on Thursday. This will give me a full seven (7) trading days of time-value for the it to work itself out, except for a shortened week because of a holiday. On extremely shortened trading weeks, I do not recommend using this strategy.
  • Since the SPDR Gold Trust usually has large price swings weekly, you do have the option to widen the strike prices for more profit. I like to keep the strike prices relatively close to ensure a profit, but it is up to the trader.
  • If one side of the trade is showing a large profit early and you think it may still move in that direction, you can close out the losing side of the trade and this will turn your position into a bull call spread (closing out the put positions) or a bear put spread (closing out the call positions). Note: you do not want to convert this too early into the trade as the ETF could reverse course.
  • I generally aim for a 30% to 50% ROI trading the SPDR Gold Trust.
  • If I know there is a catalyst upcoming for a certain week, such as the Fed having an announcement or something along those lines, I may be more inclined to buy more contracts using this trade. Gold prices and this ETF will fluctuate wildly on news reports, and this ETF usually follows suit.
  • Always use a trade calculator before placing this trade to know where your profit/loss strike prices are at, and then print. This will come in handy late the following week when a decision is to be made on whether to close the position or to hold.

I mentioned earlier in the article that I will use other ETFs and stocks with this strategy weekly. Here is a list of those I currently trade (with comments) :

ETFs:

  • Direxion Daily Financial Bear 3X (NYSEARCA:FAZ) - works great. I will trade this ETF frequently. I do not recommend trading the Direxion Daily Financial Bull (NYSEARCA:FAS). Below average ROI, but very attainable.
  • Market Vectors Gold Miner ETF (NYSEARCA:GDX) - is a somewhat cheaper alternative to the SPDR Gold Trust, without the large price moves. I trade this more conservatively. Average ROI.
  • iShares Silver Trust (NYSEARCA:SLV) - a personal favorite. Very little price move needed to profit. It is consistent and their options are very liquid. High ROI.
  • United States Oil Fund (NYSEARCA:USO) - I will occasionally use this. The options have liquidity. A large price move is not needed. I use smaller amount of contracts. High ROI.
  • iShares Trust Barclays 20+ Year Treasury Bond (NYSEARCA:TLT) - little movement needed to profit. Average ROI.

Stocks:

  • Apple, Inc. (NASDAQ:AAPL) - I make this trade about every two weeks. Great to use ahead of earnings. Very liquid options. Below-average ROI.
  • Abercrombie & Fitch Company (NYSE:ANF) - very consistent and not much of a price move needed to profit. High ROI.
  • Citigroup Inc. (NYSE:C) - one of my favorites to trade on a weekly basis. Options are liquid. It has been a long time since I have had a losing trade with Citigroup. High ROI.
  • Salesforce.com (NYSE:CRM) - not cheap to trade, but a very volatile stock. High ROI.
  • First Solar Inc. (NASDAQ:FSLR) - anyone familiar with First Solar knows how volatile this stock is. A consistent performer when using this strategy. Below-average ROI is the one drawback.
  • Google Inc. (NASDAQ:GOOG) - with the large daily price swings Google has, it is a logical choice for this strategy. The bid/ask spread can be very wide, so be sure to use a limit order to ensure you get a fair price. Average ROI.
  • Molycorp, Inc. (NYSE:MCP) - another personal favorite I use frequently. Molycorp is an extremely volatile stock. It is rare that I do not make a weekly profit on trading it. Provides a good ROI. Very consistent.

I prefer to close the positions out on Thursday's, if possible. Always be sure that you do close the position out before the market closes on Friday.

If you have any questions about this strategy, you can leave a comment or send me an e-mail. I will try to respond as soon as possible.

Source: Trading Weekly Options With The SPDR Gold Trust And Others